Personal Finance

Is Now the Time to Buy or Refinance?

Based on conversations we are having with our clients and other professionals – this question keeps coming up and seems to be a hot topic of conversation. It makes sense after all – we are seeing historically low interest rates and a hot real estate market in the Raleigh/Durham area.

Now, June usually marks the height of the spring real estate market—it’s National Home ownership Month, after all. But this past June was less than typical. With job loss numbers in the tens of millions, the economic impact of the coronavirus pandemic has put home ownership at risk, with many struggling to make mortgage or rent payments.

There are two unexpected bright spots, though: Interest rates falling to historic lows and a Raleigh economy that has seemingly weathered the coronavirus economic shockwave.

So, if you’re in a position to take advantage of opportunities to buy a home or refinance a mortgage at an irresistible rate, you may be wondering whether you should.

To Buy or Not to Buy?

It depends. There are pros and cons to buying now, and it really depends on your specific situation. Like all big decisions, there are a few things you need consider:

Time, and numbers, are on your side.

If you’re a first-time buyer or an investor looking to seize an opportunity, you probably don’t need to rush. Although most of the job losses seem to be behind us and consumer confidence appears to have bottomed out, rates likely will remain low for some time.

Supply, and available credit, are not.

Even if you’re willing to brave a fluctuating market, overall inventory is relatively low, especially in the Raleigh/Durham market. I had the opportunity to speak with Brian Hourigan, owner & broker-in-charge of Choice Residential to provide some local insight to our Raleigh market.

Brian indicated that inventory levels are at or near all-time lows and the increasing demand for housing creates a highly competitive environment for home buyers.  To be clear though, our market has been facing a shortage of inventory for several years, so this is nothing new.”

If you’re having trouble finding what you want and are unwilling to wait, don’t rule out working with a developer. Many need cash flow right now, so it could be your chance to make a deal.

Keep in mind the mortgage market hasn’t been immune to the impact of the pandemic, with liquidity dipping along with rates. May saw a tightening of lending standards, according to a recent Mortgage Credit Availability Index report issued by the Mortgage Bankers Association. Cautious lenders are changing underwriting guidelines, so you may expect more stringent credit score and down payment requirements—and your credit will factor into whether you get the best available rate.

Brain also said that the pandemic has increased the number of buyers willing to make offers without having ever visited the home in person.  This puts even more pressure on buyers who are unwilling to take this higher-risk approach to making an offer.

Is Refinancing the Right Move?

Historically low interest rates are causing a flurry of activity for existing homeowners too. Refinancing offers possibilities like reducing your monthly payment, switching from an adjustable to a fixed rate, shortening the life of your loan, or even cashing out a portion of your equity to use toward paying for college, home improvements, or other outstanding debt.

With so many questions about this topic right now – I thought it would be smart to get input from a trusted Raleigh mortgage professional, Mike LaRue at Red Oak Mortgage. “We have certainly seen a spike in refinance cases and with historic lows, it makes sense. While I’m sure some folks are waiting to see if rates drop further – if the option to refinance does make sense, I wouldn’t suggest waiting to find out.”

Mike stressed the importance of evaluating each situation thoroughly. “Every person’s situation is unique and can present different opportunities to perhaps save money either immediately or over the life of the loan.”

Although it may seem like a no-brainer, it’s not always the right move—and you could find yourself with less money in the bank instead of more. Mike and I both agree – working with trusted professionals can help you evaluate what is best for your finances and leave you feeling more confident about your decision.

Think Long Term.

If you can lower your rate by 1 percent or more, you may see significant savings. How much, though, may depend on how far along you are in paying your current loan. For example, if you’re 3 years in and want to shorten your loan from 30 to 15 years, you can save on interest, even if you end up with the same or slighter higher monthly payment, but over much less time. If you’re 10 years into a 30-year loan, however, and want to lower your monthly payment by refinancing for another 30-year term at a lower rate, you may end up paying more in interest over 40 years.

Shop around and do the math.

Although refinancing can often save money over the life of your mortgage loan, it can come at a price. In addition to the interest rate, pay attention to things such as closing costs, up-front fees (e.g., appraisal, legal, loan origination, and title search fees), points, and whether the lender will service the full life of your loan.

Finally, consider the costs of the loan against how long you plan to stay in your home. Ideally, you want to break even on your refinancing costs within one year. Be sure to shop lenders and run the numbers with your CERTIFIED FINANCIAL PLANNERTM professional—making meaningful comparisons can help you snag the best possible deal and ensure that savings outweigh costs.

Final Thoughts . . .

Taking advantage of low rates is attractive, but your personal financial situation will always dictate whether it’s a good time to buy or refinance, especially with lingering uncertainty around the economy.

It’s also worth noting – if you’re an investor looking to enter the real estate investment market – I suggest you plan to have an emergency fund of at least three months’ salary, as well as enough funds to cover transaction costs.

The economic fallout of the pandemic could affect the ability of residential and commercial tenants to make rental payments.

If you are thinking about refinancing or buying a new home and have questions, schedule a quick call with us and we can walk through your options.


About Christopher Walsh, CFP®

I’m a Wealth Manager with Keystone Financial Partners, who has created a financial planning platform dedicated to helping young professionals make better decisions with their money. I was born and raised in the Hudson Valley region of New York, just north of New York City. I moved to Raleigh in 2010 with my wife, Lauren, our daughters, Aubrey and Ella, and our golden retriever, Duncan. When I’m not keeping up on financial news or meeting with clients, you’ll find me checking out local breweries with friends, hitting the golf course, taking trips to the beach, or spending time with my family. I started my financial planning career in 2006. I became a CERTIFIED FINANCIAL PLANNER™ professional in 2012. I chose this career because I absolutely love it – I truly enjoy taking complex issues and helping clients understand them. We help our clients reduce taxes, invest smarter, and retire on their terms.